U.S. Weighs Selling 50- and 100-Year Bonds After Yields Plummet

Re:U.S. Weighs Selling 50- and 100-Year Bonds After Yields P... by mlazos on Saturday August 17, 2019 @05:43PM (#20726601)

Most Americans are in debt and have no stored wealth. I know that intuitively it seems like stored wealth should be good for an economy but it’s not the case. Spending more money than you have (debt) is actually better for the economy because it results in more movement of goods and services. Leveraged consumption grows businesses which hire more people which creates wealth. I do think that education is important, but you also need consumption to drive demand for educated professionals in growing businesses. In short you need both for the economic cycle to work.

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Re:U.S. Weighs Selling 50- and 100-Year Bonds After Yields P... by ericd on Saturday August 17, 2019 @05:53PM (#20726648)

I'm not arguing against debt. I understand that debt can grow the economy, increase asset values, increase incomes, etc etc, but debt only helps the long term wealth of a country if it's used toward productive ends. It helps GDP/incomes in the short term if it's spent on consumption, but spending the credit on unproductive investments doesn't increase the amount of debt that people/businesses can service long term. When an economy can no longer service more debt, that's when you see debt crises and contractions begin.

EDIT: Here's a pretty good overview of debt cycles, and when debt helps/doesn't: https://www.youtube.com/watch?v=PHe0bXAIuk0 Or if you have more time to devote to the subject: https://www.amazon.com/Big-Debt-Crises-Ray-Dalio-ebook/dp/B0...

EDIT 2: When I say "stored wealth", I don't mean the amounts in normal peoples' savings accounts, but the productive capital of the country - land, businesses, infrastructure.

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Re:U.S. Weighs Selling 50- and 100-Year Bonds After Yields P... by throwaway34241 on Saturday August 17, 2019 @11:22PM (#20728038)

Debt-financed consumption won't help the long term debt cycle, but increasing consumption seems like it could still be an element of economic growth.

For example investments have two sides the saver (who loans the money) and the borrower for the building, infrastructure, factory, etc. Normally the interest rate can be raised to encourage saving and discourage investment, or lowered to discourage saving and encourage investment.

But what if the interest rate is already low, and companies still don't want to invest? Then you are limited by the amount of credit-worthy investment opportunities and not the savings. You could lower real interest rates to be negative, but do you really want to pursue investments with a negative yield?

In that case, turning some of those excess savings into consumption would help things move along. There already was more than enough savings, so that wasn't limiting investment. And the increased demand will stimulate the need for more buildings, factories, etc, and provide more opportunities for companies to invest (borrow) again.

China has wanted to lower its saving rate somewhat - they've used the government to build out infrastructure and real estate at a tremendous rate, but it's unlikely that they will be able to find enough infrastructure investments (that are actually good investments, with positive returns) to keep going at the same pace forever.

Interest rates are pretty low right now, and companies are accumulating huge cash balances (rather than investing) so the idea for more consumption to increase investment opportunities doesn't seem too crazy. But if such a thing were to be attempted maybe it would be better to use tax policy or other means rather than increasing the debt indefinitely.

https://en.wikipedia.org/wiki/Global_saving_glut

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Re:U.S. Weighs Selling 50- and 100-Year Bonds After Yields P... by Aloha on Saturday August 17, 2019 @06:30PM (#20726836)

There is a huge amount of stored wealth locked up in homes that will be sold in the next 10-15 years from boomers dying or downsizing.

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Re:U.S. Weighs Selling 50- and 100-Year Bonds After Yields P... by Retric on Saturday August 17, 2019 @08:26PM (#20727361)

Homes are largely proxies for other wealth. Individuals don’t own subway systems or good schools, but access to such things are extremely valuable. Aka, location, location, location. This is why the home prices are so unstable they are propped up by demand for such access not the structures themselves.

Counter intuitively this creates huge downward pressures on property values as boomers move or die off.

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Re:U.S. Weighs Selling 50- and 100-Year Bonds After Yields P... by Retric on Saturday August 17, 2019 @08:20PM (#20727333)

Divide total American wealth by it’s population and you find the average American has an extreme amount of wealth relative to the rest of the world. American private debt seems like a huge deal, but it’s largely owned by other Americans.

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